The Complete TurtleTrader

by Michael W Covel

  Life Is Random … Sometimes

  People were willing to do just about anything to get Dennis’s attention. Of all the approaches his students took to get themselves admitted to his trading school, Jim Melnick’s was the most extreme and inventive. He was an overweight, working-class guy from Boston who was living over a saloon in the Chicago suburbs. However, Melnick was determined to get as close to Dennis as possible. He actually moved to Chicago just because he’d heard about Richard Dennis. He ended up as a security guard for the Chicago Board of Trade and every morning would say, “Good morning, Mr. Dennis” as Dennis entered the building. Then, boom, the ad came out and Melnick got selected.

  Dennis, who was loaded with millions and power, took a guy off the street and gave him the opportunity to start a new life. The story of Melnick is pure rags-to-riches. How did he know that getting that close to Dennis could lead to something? He didn’t, of course, but he hoped it would. His self-confidence was prophetic.

  Another of Dennis’s students described Jim’s “everyman” qualities: “He reminded me of a truck driver and like magic became a ‘Turtle’ and he still couldn’t believe why or how … as far as where he is today, I have no clue at all.”

  Mike Shannon, a former actor who had left school at the age of sixteen, made it to Dennis’s door, too. He recalled, “I was working as a broker, and I was a very bad commodity broker.” Through a bunch of floor brokers Shannon found out about the ad, but he knew his résumé was problematic. He had a solution to that: “I made up a phony resume, and I sent it off to Richard Dennis. I used the school of audacity to get the job.” People get fired or, at the very least, don’t get hired because of falsifying a résumé, but that was not how it worked with the eccentric head of C&D Commodities.

  On the other hand, Jim DiMaria, a Notre Dame graduate and family man straight from the Ozzie and Harriet back lot, was already on the trading floor working for Dennis when he applied. DiMaria remembered that every now and again there would be a “1,000 lot” (jargon for a huge order of one thousand futures contracts) that would come through on the trading floor. Finally, he said, “Who is this client with the enormous orders?” He thought he’d heard it was a rich dentist, which was plausible since doctors often dabbled in trading. Eventually he put two and two together, realizing that Rich Dennis was the “rich dentist.”

  Dennis, however, was not looking solely for doormen and floor traders. He went after the highly educated, too. Michael Cavallo had a Harvard MBA. With a mop of brown hair and wire-rimmed glasses, he was a preppy corporate warrior working in Boston when he caught wind of the ad that would change his life.

  When he saw the ad, Cavallo had already heard of Dennis. He recalled, “I nearly fell out of my seat when I saw it. He was looking for starting shortstop. I couldn’t believe it. This is sort of a dream job for me. I immediately responded.”

  There was plenty of serendipity as other potential students learned of the experiment. Former U.S. Air Force pilot Erle Keefer’s path to Dennis was pure coincidence as well. He was sitting in a New York City sauna when he picked up a newspaper and spotted the Dennis ad.

  At that moment the female star of the movie Trading Places, Jamie Lee Curtis, was sitting in the same sauna with her boyfriend. Keefer was sitting there reading Barron’s. “I am looking at this ad and I knew who Rich was. I said, ‘Wow! This guy did it.’” Keefer thought there was little chance he would get accepted.

  In the strictly man’s world of commodities trading in the early 1980s, women did apply. Liz Cheval, the diminutive and flamboyant Katie Couric look-alike, was one of them. She must have known that she would stand out from other applicants by being female. At the time she was actively considering a career in filmmaking, even though she was working for a brokerage firm as a day job.4

  Cheval’s former boss, Bradley Rotter, knew the offer was a big deal: “Dennis had already been managing money for me, and I did very well. Liz came to me and said she was thinking about applying and asked whether or not she should do it and I said absolutely. It was an opportunity of a lifetime.”

  Jeff Gordon, an attorney and small business owner at the time, just happened to be thumbing through the newspaper and saw the ad. Gordon, five foot eight, a slender man who could have been a former member of the Revenge of the Nerds cast, knew the opportunity could be huge: “Everybody wanted to be able to trade, to make money like Richard Dennis.” Firing off a résumé was a coincidental and fortuitous life-changing decision that Gordon made in a heartbeat.

  Given Dennis’s eccentric personality, it was no shock that Jiri “George” Svoboda, an immigrant from then communist Czechoslovakia and a monster underdog in most people’s eyes, was selected. He was a master blackjack player beating Las Vegas like a drum long before Breaking Vegas and 1990’s famed M.I.T. blackjack team.

  Dennis also selected Tom Shanks. Handsome, dark-haired, and smooth with the ladies, Shanks was working as a computer programmer for Hull Trading as his day job and beating Vegas at night with his blackjack skills.

  Shanks and Svoboda knew each other from the blackjack underground. When they bumped into each other in Chicago, Svoboda said to Shanks, “Hey, I’m here for an interview with Richard Dennis. Have you heard?” Shanks had no clue, but said, “You’ve got to get me an interview!” They both ended up getting hired that same afternoon.

  Erle Keefer knew about their wild backgrounds. He said, “George ran the Czech team, and Tom was essentially with the computer in a boot.” Shanks used to say, “I never want to see another boot in my life.” He had to learn how to take it apart to put the computer in and was mighty sick of boots after a while. Other inventions allowed Shanks to be almost dead accurate as to the sequence of cards as they were dealt.

  How could Dennis not hire a guy who had put a computer in a boot during the 1970s? That effort just screamed, “Do anything to win.”

  Mike Carr, on the other hand, had built a name for himself at the role-playing game firm Dungeons and Dragons, where he developed a cult following with his “wargaming” authorship. He had also developed a board game, “Fight In The Skies,” which modeled World War I—style air combat. He just happened to pick up the Wall Street Journal for the first time in six months and saw the ad. He called it “Divine Providence.”

  Jerry Parker, who would make the cut, knew the potential life-changing ramifications of being selected. The unassuming accountant and evangelical Christian, with a proper side part to his hair, was not headed down the trading path prior to seeing the C&D ad. He said, “I was a small town person [from Lynchburg, Virginia] and Richard Dennis rescued me from leading a normal life.”5

  Before any of the average-Joe pupils were officially “rescued,” as Parker had so aptly phrased it, they had to continue through the selection process. After sending in their résumés, applicants who made the first cut received a letter and a test.

  The letter was formal and utilitarian. It reflected none of that Dennis “energy and spirit.” In by-the-book attorney-speak, it said if selected, Turtles would get 15 percent of the profits as salary after they completed a short training period and then a short trial trading period. All potential students were told that they would have to relocate to Chicago. Prospective students at this stage of the process were asked for their college entrance exam scores. If they didn’t have those, they needed to explain why.

  There was more. Candidates had to complete a 63-question true-false test. The true-false questions all appeared to be easy at first glance, but perhaps tricky on second thought. A cross-section of true-false questions included:

  Trade long or short, but not both.

  Trade the same number of contracts in all markets.

  If you have $100,000 to risk, you should risk $25,000 on every trade.

  When you enter, you should know where to exit if a loss occurs.

  You can never go broke taking profits.

  The majority of traders are always wrong.

  Average profits should be abou
t 3 or 4 times average losses.

  A trader should be willing to let profits turn into losses.

  A very high percentage of trades should be profits.

  Needing and wanting money are good motivators to good trading.

  One’s natural inclinations are good guides to decision making in trading.

  Luck is an ingredient in successful trading over the long run.

  It’s good to follow hunches in trading.

  Trends are not likely to persist.

  It’s good to average down when buying.

  A trader learns more from his losses than his profits.

  Others’ opinions of the market are good to follow.

  Buying dips and selling rallies is a good strategy.

  It’s important to take a profit most of the time.

  Just as on college entrance exams, there were also essay questions to answer. On the back of the true-false answer sheet, prospective students had to answer these essay questions with one sentence:

  Name a book or movie you like and why.

  Name a historical figure you like and why.

  Why would you like to succeed at this job?

  Name a risky thing you have done and why.

  Is there anything else you’d like to add?

  Dennis also listed essay questions that asked what good or bad qualities students might have and whether those would help or hurt in trading. In addition, he wanted to know whether prospective students would rather be good or lucky. There was seemingly no primer to answer these questions!

  The answers to the fourth essay question ranged from a prospective student who drove an hour to a basketball game without having a ticket to someone who drove around Saudi Arabia for several months with whiskey in his car trunk—not exactly something you should do in that part of the world. The person without the basketball ticket was hired, but the person who took a risk for the sake of risk-taking was not.6

  Dale Dellutri, who was Dennis’s programmer at C&D and ended up as the day-to-day manager of the students, said the hiring strategy had a “wing-it mentality,” adding, “We were looking for smarts and for people who had odd ideas. There was some experimental part to it.”7

  Dennis, however, was clear about what he was looking for. He wanted people who had high math aptitude and high ACT (American College Testing) scores. He wanted people with some interest in computers or market methods. Those who worked to systematize things had an advantage. Dennis added, “The majority of people we wound up hiring had some interest in games. They were chess players or backgammon players, enough so that they would even mention it on a resume.”8

  Math ability was not the sole determinant for hiring by any stretch. Dennis and Eckhardt knew long-term trading success did not correlate one-to-one with high IQs. They were trying to assess the applicants’ ability to think in terms of odds — the same kind of thinking needed to win at blackjack in Las Vegas. And they wanted applicants with the emotional and psychological makeup to treat money abstractly so they could focus on how to use it as a tool to make tons more.

  More than anything, Dennis was interested in choosing people who could subsume their egos. None of the chosen few ever would have wanted to be on the cover of Time magazine (at least, that is, when they were chosen). He ultimately chose people who he thought had the ability to accept learning. While they were with Dennis, they had to be tabulae rasae—blank slates.

  It is worth repeating: The selected students were a seriously eclectic bunch. The group was as culturally, sociologically, sexually, and politically diverse as you could assemble. Walt Disney and his famed “It’s a Small World” would have been proud of Dennis’s open-arms approach.

  The Interview of Your Life

  Those candidates who passed the test were then asked to interview in person at C&D Commodities’ offices during the Chicago winter. The process was the same across the board. Dale Dellutri escorted them in and out of the room, and both Dennis and Eckhardt interviewed everyone. Interviewees were struck by how informal and, in most cases, friendly their interviewers were.

  Mike Shannon, the candidate with the padded résumé, did some serious research in advance of his interview. He went down to the Chicago Tribune basement to learn everything he could about Dennis. He later discovered, “Over 90 percent of the answers to the questions on the test were in those articles.” Shannon had even researched what Dennis liked to wear: “I knew that he didn’t like to wear shoes. He hated suits and all that. I just wore a beat-up old sport coat, pair of jeans, and pair of topsiders with no socks.”

  It turns out Dennis and Shannon had one thing in common: They both grew up playing the board game Risk. Shannon said, “I knew he played when he was a teenager. I think that kind of helped and that definitely broke the ice.”

  For those unfamiliar with Risk, it is a game of world domination, where the object is to conquer the world. To win, you must attack and defend—attacking to acquire territory, and defending to keep it from your opponents. Dennis may have been quirky, but he lived to win. That was exactly what playing Risk meant: Beat the other guy and win.

  Paul Rabar, another student candidate, just happened to have been the most experienced trader of all student hires. Rabar had dropped out of UCLA Medical School. Before that, he was a classically trained pianist. However, before being hired by Richard Dennis, he was trained and mentored by Chuck Le Beau. In the late 1970s and early 1980s, Le Beau was a regional director for the E. F. Hutton & Co. brokerage on the West Coast. It was there that he taught Rabar.

  In one of those small-world stories, their E. F. Hutton office ended up handling some brokerage for the infamous Billionaire Boys Club (BBC) during the early 1980s. The BBC was started by Joe Gamsky (who later renamed himself Joe Hunt, and became the focus of several TV movies). Gamsky was trading serious-sized money across the Chicago Mercantile Exchange from 1980 to 1984, making a big name for himself. Before he was exposed as a con, Gamsky was getting Dennislike attention on the Chicago trading floors and in the press. He, too, was called a boy wonder.

  Le Beau and Rabar, however, did nothing wrong. They were simply brokers placing trades for an assortment of clients. Still, was it possible that Dennis was interested in going through the interview process with Rabar just to see what he may or may not have known about Gamsky’s trading? That’s the kind of opposition research of which Dennis was certainly capable.

  Rabar’s interview did evolve into a discussion of the finer points of trading. At one point Dennis asked a trick question: “What if you get bounced out of the same ‘long’ trade five times in a row?” Rabar was cocksure: “If it goes up again, I will buy it again.” Rabar’s knowledge had a lot to do with his hiring, but he was the exception. Dennis didn’t want a room full of Rabars.

  Erle Keefer, on the other hand, started talking about British empiricism with Dennis. They were discussing “what is reality?” and quickly dove into a deep debate about George Berkeley’s book Hylas and Philonous. Keefer later learned that one of the things Dennis was looking for was the ability to suspend your belief in reality.

  Then, quickly, Eckhardt changed the subject from philosophy in order to test Keefer. He asked, “Do you believe in the central limit theorem?” Keefer replied, “I believe the central limit theorem is like a stop clock, which is right twice a day.” He later said, “Little did I realize the game we were going to play.”

  Eckhardt was signaling that their trading strategy relied upon the idea that if you were tossing dice, a string of 6 sixes in a row happens more often than people know or expect. In other words, Eckhardt was saying that they were not mean reversion traders. Mean reversion traders make bets that markets stay in tight ranges and that if they veer out of the range, they typically revert to the average or mean. He was saying in plain terms that markets trend, and those trends come unexpectedly. Keefer knew it meant that they were not options traders.

  Michael Cavallo had a different vantage on the interview. He said it was the only job interv
iew that he ever truly enjoyed. He didn’t care whether or not he got the job because he had “this great conversation with people who were incredibly intelligent.” Dennis and Eckhardt peppered Cavallo with questions. They asked him how much he knew about markets, on a scale of a zero to one hundred. He recalled, “I answered, ‘sixty,’ being not just an interview gamesmanship response, just the kind of response where I thought I was at.”

  Later, Dennis liked to tell the story that he had asked that question of everybody and that Curtis Faith had replied “ninety-nine” and Liz Cheval had replied “one.” Dennis always fondly said, “I hired both of them because that way I figured I had everything that you could know about commodities.”

  There was obviously no way you could second-guess what answers Dennis was looking for. And let’s face it; The odds were stacked against potential students if they gave pat “Harvard Business School graduate” responses. Cavallo knew in the Fortune 500 world that people would not get a job answering the way Faith and Cheval did. As he commented, “A lot of places would say, ‘Oh well, this guy is too arrogant and he thinks he knows more than he does and he’s headed for a fall.’ And they might say, ‘She’s too timid.’ But in fact, certain things that they liked most other places wouldn’t necessarily like.”

  On the other hand, Mike Carr’s answer to Dennis’s question about what person he admired the most could easily have been interpreted as politically incorrect. Carr recalled, “I remember Rich asking me, ‘Why Rommel?’ I was the only one who cited Field Marshal Erwin Rommel, the famed ‘Desert Fox,’ as the person from history I most admired. Despite being a German general during the Second World War, he was not a Nazi. Most telling of all, he was highly respected by military men on both sides, as a general and as a man.”